Asset transfer included the land San Jose wants to use to build a new baseball stadium

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The state controller on Wednesday found that the city of San Jose's Redevelopment Agency "inappropriately" transferred $148.1 million when it shut the agency down two years ago, setting up a major challenge for city leaders, who had wanted to use a related piece of property to bring the Oakland A's to the South Bay.

One of the pieces of property that State Controller John Chiang found was inappropriately transferred includes land in the Diridon Station Area, where San Jose leaders had hoped to build a future ballpark. The land include 13 acres bounded by Park Avenue and San Fernando Street.

"The governor and Legislature made it clear that redevelopment assets need to go toward retiring RDA debt and funding critical services at the local level," Chiang said in a statement. "Our reviews in San Jose and elsewhere are meant to ensure that happens."

Mayor Chuck Reed was in Washington, D.C, and issued a statement through his office. Overall, he said he was "disappointed." With regards to the Dirdon properties, Reed said that the controller "failed to recognize" an ageement between the Joint Powers Agreement and the A's.

"The city council and county supervisors have both made their desire to have a ballpark built on the site known through formal resolutions in the past," Reed said. "My expectation is that we will continue to work together to bring the Athletics to San Jose regardless of the ultimate ownership of the JPA properties."

The total amount includes more than $108.1 million in land and improvements, $29.1 million in property transfers to the San Jose Diridon Development Authority and $10.9 million in cash transfers to the City Housing Agency. The city has already paid back the $10.9 million in cash.

Coincidentally, state controller's ruling comes a day after a Sacramento judge ruled in favor of the 49ers and the city of Santa Clara, where city leaders there moved $30 million in 2011 from its redevelopment agency to pre-pay the team, which is building a $1-billion stadium. The judge there tentatively ruled in favor of the team and city, over the objections of school supporters, who said property taxes should have been funneled to the schools and other countywide services.

Controller spokesman Jacob Roper told NBC Bay Area on Wednesday that his office is currently reviewing similar RDA issues in Santa Clara, Oakland and Danville, but has not yet completed its investigation. If the controller's prior rulings are any indication, Chiang's office would likely rule against Santa Clara for transferring the redevelopment money to the football team.

San Jose is one of 28 cities the controller has reviewed since Gov. Jerry Brown did away with redevelopment agencies in 2011.

Some cities were found to have been in total compliance with that move, Roper said, which means they did not transfer redevelopment agency money to their particular city, but shared it with the "successor agency," which is a regional oversight board of the many countywide agencies that stand to receive property tax money.

Others made moves that were "unallowable," according to the controller. Milpitas and Morgan Hill also were found to have improperly moved assets and cash; $175 million and $228, respectively.

The successor agency, governed by a locally-appointed oversight board, must then use the asset to retire RDA debt and redistribute extra cash to fund schools, public safety, and other local services.

The oversight board can return an asset, if the board determines that the asset serves a governmental purpose. The city of San Jose argued that many of the properties served governmental purposes, but that argument, according to the state controller, ignored existing law that states that only local oversight boards – with the concurrence of the State Department of Finance – can make such a determination.

San Jose had also argued that many property transfers were legitimized by third-party agreements. But those agreements came in November of 2011, five months after the governor and Legislature adopted the law ending redevelopment, which established the June 28 cutoff, according to the controller.

According to Reed, the properties transferred to San Jose include assets that serve a civic or government function, and likely will fall under the government-use provisions of the new redevelopment dissolution law. He said he expects that the oversight board will make the same findings.

The state controller's office isn't disputing what may or may not happen, but that the transfer didn't go through the proper channels in the first place.